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Online Purchasing Continues To Grow

The Institute for Supply Management (ISM) and Forrester Research released the latest ISM/Forrester Research Report On eBusiness, a first-of-its-kind report that tracks online activity for both manufacturing and non-manufacturing organizations. The primary finding of the new Report indicates that the percentage of direct materials purchased online surpassed the percentage of indirect materials purchased using the Internet for the first time since the fall of 2000 when this Report was developed.

(Direct materials are analogous to OEM in ISM's parlance, while indirect refers to MRO supplies.)

Survey respondents spent an average of 11.7 percent of their total direct materials spent using the Internet in Q2 2003, up 1.7 percent from Q1. Indirect materials spending remained flat at 11.0 percent.

"For the first time, companies purchased more direct materials using the Internet than indirect materials. Large companies that procure more than $100 million per year also increased their use of online auctions," said Edith Kelly-Green, spokesperson for ISM and vice president and chief sourcing officer for FedEx.

"Two of the main concerns keeping survey respondents from wider adoption of the Internet surround the lack of supplier enablement and integration with internal and external systems."

Kelly-Green continued, "Respondents cited the following as barriers to Internet adoption:

"Most of our suppliers (99 percent) do not have B2B capabilities;

"Not all suppliers are ready to participate;

"To use most Internet services, we would need to input data to both our MRP system plus the suppliers' systems; for that reason, we choose not to use supplier services;

"Lack of software integration capabilities between our company and our suppliers."

"All companies agree that the Internet continues to grow in importance, with 42.3 percent of large-volume purchasers saying that the Internet was very important to their purchasing strategy in Q2 -- an increase of 10.7 percent from Q1. These same purchasers made significant or dramatic changes to their procurement processes in Q2 as well, with an increase of 6.3 percent to 22.7 percent," said Jennifer Chew, senior analyst at Forrester.

Other Key Findings

Supplier collaboration increases. Despite the limited capabilities of their trading partners, 60.6 percent of companies collaborated with suppliers online in Q2, an increase of 1.5 percent from Q1. Furthermore, 93 percent of companies that collaborated online either increased or maintained their level of collaboration during the past three months.

Online marketplaces attract more non-manufacturers. 36.1 percent of non-manufacturers purchased through online marketplaces in Q2, up 4.4 percent from Q1. In addition, 15.1 percent of non-manufacturers increased their usage of online marketplaces, while only 1.5 percent decreased use.

Online RFP usage is on the rise. 61.8 percent of companies used the Internet for RFPs (request for proposal) in Q2, a drop of 4.0 percent from Q1. Despite the overall drop 27.5 percent of companies increased their usage of the Internet for RFPs, 4.7 percent more than in Q1.

Large companies are using more eProcurement tools. In Q2, 41.9 percent of companies used an enterprise-wide procurement tool, a 1.8 percent increase over Q1. Additionally, 12.5 percent of large companies used the tools significantly more than the previous three months, compared with 7.3 percent in Q1.

The Report is based on data compiled from a survey sent to supply management executives in more than 600 manufacturing and non-manufacturing organizations belonging to the ISM Business Survey Committees. Membership on these committees is diversified by standard industrial classification (SIC), based on each organization's contribution to gross domestic product (GDP). All geographical areas are represented on the committees.